Plaintiffs Exhibit US y A p p lei:*v 02s:<i

PX-0003

'

-EBOOK AGENCY DISTRIBUTION AGREEMENT United States / Canada MS#______________

This Agreement is between Apple Inc. ("Apple"), having its principal place of business at1 Infinite Loop, Cupertino, California 95014. and Holtzbrinck Publishers, LLC, doing business as Macmillan, ("Publisher"), having its principal place of business at 175 Fifth Avenue, New York, NY 10010, and is effective on the date signed by both Parties (the “Effective Date1').

Apple desires to be appointed as Publisher’s agent for sales and delivery of digital books under certain conditions, and in exchange for a fee, on behalf of principal Publisher’s account, and Publisher is willing to appoint Apple as its agent under such conditions and pay Apple a fee.

In consideration of mutual promises, Apple and Publisher (each a “Party" and collectively, “Parties”) hereby agree as follows:

1. Definitions.

The following terms shall have the following meanings for purposes of this Agreement:

(a) “.Artwork’' means cover art, photos, drawings, illustrations and any other artwork that is included in physical copies of Publisher Content, and which has been provided by or on behalf of Publisher to Apple for its use under this Agreement. For clarity. Publisher may, in its discretion, exclude any cover art, photos, drawings, illustrations, artwork, content other than text, and/or third party material from any Publisher Content provided to Apple, provided that Publisher must provide Apple with any such materials to the extent generally provided to any other eBook distributor. All Artwork provided to Apple shall have been cleared for Apple’s use as contemplated herein.

(b) “Content File” means a digital file comprising at least an item of Publisher Content, associated Artwork (if any), and metadata.

(c) “Customer Price” means the price displayed to the end-user on the Online Store, as set by Publisher tor each eBook by selecting from the prices set forth in Exhibit A using iTunes Connect.

(d) “eBook” means each copy of Publisher Content, and its associated Artwork (if any), Extras (if any) and metadata in a form authorized for download on the Online Store.

(e) “Insert Content" means any Artwork or other content provided to Apple for promotional purposes by or on behalf of Publisher and associated with Publisher Content, such as book reviews, author bios, and similar content, and which Publisher must provide Apple to the extent generally provided to any other

eBook distributor for use in online eBook promotion.

(f) “iTunes Connect'" means the proprietary content and account management tool known as iTunes Connect, provided by Apple to Publisher during the Term for use by Publisher and its affiliates in furtherance of the purposes of this Agreement. Despite anything to the contrary in this Agreement or any iTunes Connect user license, the terms of ise for iTunes Connect app1i cable to Publisher shall be no more restrictive and shall impose no additional material obligations or requirements than its terms as o f the Effective Date; and iTunes Connect licensee shall be deemed to include Publisher’s affiliates, contractors and service providers who perform services in furtherance of this Agreement and whom are under Publisher's control or supervision.

(g) "‘Launch Date" means the date that the Online Store first starts making eBooks available, targeted for March 2010.

(h) “New Release"1 means an adult trade fiction hardcover book or adult trade non-fiction hardcover book (excluding ait books, other neavily-illustrated books and cookbooks) during whichever of the following periods ends earlier; seven (7) months from its first generally available commercial publication in any format; and such time as the book is available only in hardcover (if at all).

(i) ‘'Online Store-’ means an electronic store owned, .or

controlled by Apple or a n Apple affiliate that specifically and primarily targets the United States market.

(!) “Preview* * means at least 5% or one fiill-chapter excerpt from each, item of Publisher Content, as selected by Publisher in the metadata, excluding (i) prior to publication of the title. Previews for titles for which Publisher is not making any content available pre-publication and (li) Previews objected to by authors or licensors o f the corresponding eBook or other creator o f the Preview, their executors, administrators or heirs. The Parties agree that Previews need not be protected using the Security Solution or be subject to any content usage rules other than limited for personal, non­commercial use,

(k) “‘Publisher Content” means textual and graphical book content (excluding educational, scholarly and audio-book titles) owned or controlled by Publisher that has been cleared tor distribution by or with Publisher's authority m digital form in the Territory.

(1) “Publisher Materials” means, collectively, materials furnished by or on behalf of Publisher to Apple in furtherance of its appointment including Publisher Content, Artwork, metadata, Insert Content, Previews and any extra bonus-type audio \ideo or audio-visual content (‘"Extras").

(®) “Security.__ Solution” meansApple's proprietary digital rights management solution marketed as “Fairplay’", as set forth hi the

Fairplay Specification attached as Exhibit C,

(n) 'T e rm ’' m eans the .period beginning on the Effective Date and continuing until this Agreem ent is term inated pursuant to the term s o f this Agreement,

(o) “T erritory” m eans the U nited States and its territories and possessions (collectively,"U nited S ta te s '! , except that i f Publisher specifies in the m etadata that it controls the right to distribute particular eB ooks in Canada, the T em tory w ith respect to those eBooks will .include Canada,

2- A gency Appointm ent,

(a) Publisher hereby appoints Apple during the Term as its non-exclusive agent for the m arketing and delivery' o f P ublisher's and its U nited States affiliates ' eBooks through the O nline S tore on P ublisher's beha lf in the Territory to end-users for their personal, non-com m ercial use, and Apple accepts such appo in tm ent Subject to all o f the term s o f this A greem ent, including P ublisher's obligations. Publisher shall have the right to include in this appointm ent som e o r all o f the eB ooks o f any o f its or »ts affiliates ' .distributees. For clarity, the parties acknow ledge <hat thi^ appointm ent does not include educational, scholarly and/or audio-book titles or trade titles published by the Palgrave M acm illan (scholarly book) division o f St. M artin 's Press, LLC.

(b) In furtherance o f such appointm ent, Apple m ay. subject to the term s o f this Agreem ent:

i. M arket, solicit and obtain orders on P ub lisher's b eh a lf for eBooks from end-users, including delivery o f copies o f Preview s ( if provided by Publisher) for free to potential eB ook custom ers;

ii. M ake copies of, form at, and otherw ise prepare Content F iles as eBooks for dow nload by end-users;

iii. Pro-ride storage, searching* and hosting services to Publisher so end-users m ay search for. obtain, recom m endations tor, and acquire eBooks from Publisher by electronic dow nload through. lhv O nlineStore;

iv. Issue invoices for the purchase price payable by end-users for eBooks;

v. U se Insert Content, as well as o ther im ages and m aterials as provided by Publisher to Apple for prom otional use, associated w ith an eBook in m arketing m aterials and gift cards tor that eBook; and

vi. Apple m ay m odify m etadata as reasonably necessary to correct errors.

(c) A1S rights not granted herein are reserved by Publisher, Apple will not use eBooks, or any aspics made from them, and will not distribute or make eBooks available other than as expressly authorized herein, Apple will not make use o f all or any portion o f the Publisher Materials (excluding any portions thereof that are in the public domain in the United States) except as expressly authorized herein without permission from the applicable rightsholder. Nothing herein limits Publisher's, iis affiliates or its or their distributees' rights to distribute eBooks themselves and/or through other third-parties,

3. Publisher Obligations,

(a) Publisher shall make the following categories of books (including, revisions, re-printings, updates etc.) for which Publisher owns or controls electronic distribution rights in the Territory available to Apple under its appointment: (i) all New Releases; and (ii) all other Publisher Content chat it provides to any other electronic distributor of Publisher’s content in. digital form. Publisher shall endeavor to deliver to Apple as many Content Files for the above categories o f books as reasonably possible so t* > enable Apple to make them available by the Launch Date. Notwithstanding the foregoing, Publisher may withhold for any period o f time or withdraw any Publisher Content, including New Releases, from Apple’s appointment in the case o f a “'Clearance Issue" (as defined in Section 6(g)), in the case o f Publisher Content for which Publisher does not have a digital tile, or if requested to do so by the author, licensor or other creator o f any portion of the withheld Publisher Content, their executors* administrators or heirs. In the event that Publisher has withheld Publisher Content because Publisher does not have it in a digital file, Publisher shall upon Apple's request create and deliver such digital *tle to Apple and Apple shall bear Publisher's out-of-pocket expenses for the creation and delivery o f such file,

(b) Publisher shall not discriminate against Apple with respect to the permitted usage rules, functionality, and quality of any Publisher Content, except for variances arising from platform functionality or as otherwise permitted herein.

(c) Subject to the last sentence o f Section 3(a). and except tor limited-time, one-off promotions for particular items o f Publisher Content. Publisher shall provide and make New Releases for which Publisher owns or controls electronic distribution rights in the Territory and whose first publication is on or after the Launch Date available to Apple under its appointment on the same day and date and for as long as it remains a New Release and Publisher makes that New Release available to end users in any format, including physical copies.

(d) Publisher shall deliver Content Files to Apple, at Publisher’s expense, in ePub (using XHTML vocabulary) if it has a Content File in that format and, i f it does not have a Content File in that format, then OEBPS, &.od if

O EBPS is no t available then in PDF form at using iTunes Connect. Publisher Content will he delivered to a server in C alifornia by m eans o f telecom m unications o r via "load & leave" per California regulation 1502.

<e) Publisher shall not include any digital w aterm ark o r sim ilar te t i i r c >gies in the Content File.

4. Royalties.

Publisher shall be responsible for any royalties or license fees ow ed to authors, illustrators, artists, talent and other rights holders o r contributors ( if anv) arising from the use o f any Publisher M aterials in furtherance o f A pple’s appointm ent, and the Content U sage Rules, consistent w ith this Agreem ent, including any paym ents required under collective bargaining agreem ents.

5- A gency Com m ission: Tax; and Reporting,.

(a) For each sale o f an eB ook pursuant to this A greem ent, A pple shall be entitled to a com m ission o f thirty percent (30% ) o f the C ustom er Price for the eBook. The "eB ooks P ro ceed s’ tor each sale o f an eB ook shall m ean Publisher's seventy percent (70% ) share o f the C ustom er Price (i.e.. the Custom er Price less A pp le 's com m ission). The “sale" o f an eBook shall occur w hen an eB ook is first delivered to an end user.

(b) If, for any particular N ew R elease w hose first publication is on or a ile r the Launch Date, the then-current Custom er Price at any tim e while it is still a New Release is or becom es higher than a custom er price then offered by any other provider o f that N ew Release in e-book form (“O ther Custom er Price”1), then Publisher shall designate a Custom er P rice for that N ew Release that ends in •*— .99 '’ and is less than S i .00 above such low er O ther Custom er Price. The foregoing Publisher m atching obligation shall not apply in the event that (i) the O ther C ustom er Price is a pre-order price such that the N ew Release will be b u t is no t yet available, or (ii) the O ther Custom er Price is offered by a provider that has not been directly or indirectly authorized by Publisher to m ake the N ew Release available in eBook form ,

(c) Apple shall rem it to Publisher, by electronic funds transfer (“E F T ”) the eBooks Proceeds on all sales o f eBooks m ade during each calendar m onth no later than forty-live (45) days follow ing the end o f that m onth. Paym ent shall be m ade in U nited States dollars (US$). Such paym ent shall be accom panied by a statem ent in a form at approved by Publisher that specifies tor each eBook: the ISBN o f the digital edition supplied by Publisher, the num ber o f copies sold by A pple to end-users (for the m onth and cum ulatively tor the calendar year) by ISBN, as w ell as the total due and ow ing from A pple for Publisher for the m onth w ith respect to all eBooks. In addition, sales by ISBN , custom er country code, stale or province (as applicable), and zip code will be available through A pp le 's reporting systems.

(d) U sing iTunes Connect, Apple shall m ake available and Publisher shall have access to an updated sales report including item ized sales of eBooks by ISBN.'

{e} Publisher is responsible fo r any fees (e.g., w ire transfer and EFT fees) charged by Publisher’s bank or any interm ediary banks. Publisher shall provide A pple w ith Publisher’s banking inform ation using iTunesConnect.

(f) Publisher shall supply A pple the criteria on which A pple shall rely in order to collect any applicable sales, use. excise, gross receipts o r other taxes, including tax nexus inform ation. In turn. A pple will cause the Online Store to charge the appropriate tax to custom ers, w ill collect t ip tax from custom ers, and will b e responsible fo r rem itting ali s «.u collections to the appropriate tax authority.

(g) Publisher shall indem nify and hold Apple harm less against any and ali claim s by any tax authority for any underpaym ent o f any sales, use. goods and services, value added o r other tax o r levy, and any penalties and/or in terest thereon resulting from Publisher’s provision o f inaccurate taxability criteria, including nexus. Publisher is responsible for a>! audits related to the tax, and Apple agrees to provide reasonable levels o f cooperation with respect to any such audits.

6- A pple Obligations.

(a) A pple shall condition use o f eBooks on an end user’s acknow ledgem ent o f term s o f use. w hich term s shall state that any use o f eB ooks is for personal and non-com m ercial use only, that the sale o f eB ooks does not provide any com m ercial o r prom otional use rights in any eBook, and that end- users m ay not bum to d isk copies o f all o r any portion o f the eBook. A pple shall not m ake available any product or technology designed to enable print (including print to PD F or to other digital format}, bum or copy/paste functionality for eBooks.

(b) A pple shall be responsible for all m arketing, storage, hosting and delivery costs associated w ith A pple’s appointm ent activities.

(c) A pple shall be responsible for providing end-user technical assistance and product support w ith respect to each eBook. For clarity, this obligation does not extend to end-user product liability claim s arising from any Publisher Content.

(d) A pple shall sell each eBook only as an entire book and only as a separate single title for sale, and not in any o ther form at, including w ithout lim itation bundled w ith other books or products, as part o f a subscription, or as single chapters or other parts o f a book, w ithout the prior written approval o f Publisher in its sole discretion.

(e) W ith respect to ail Publisher M aterials or any portion thereo f that Apple sells or snakes accessible (including, w ithout lim itation, pursuant to Section 2(b)(v)), A pple shall not m ake any changes, additions or deletions to the contents o f the Publisher M aterials as delivered by Publisher. A pple shall, how ever, substitute any revised version o f all or any portion o f any Publisher M aterials that Publisher provides; and A pple shall include the title, author,.and copyright'notice w ith each eBook,

(f) Apple shall screen and block purchases and delivery o f Publisher C ontent outside the Territory by using the end-user's credit card bill-to address. Apple shall use technology to adm inister territorial restrictions for Pub lisher's eBooks that is no less restrictive than A pple uses for any other content provider on the O nline Store,

(g) I f Publisher notifies A pple (?) that it lost rights so that it is no longer able to authorize A pple to use certain rights perm itted under its appointm ent,(ii) that A pple’s exercise o f its rights will cause Publisher to violate the rights o f a third party, (iii) that, in the good faith opinion o f P ublisher’s legal counsel, A pp le 's exercise o f its rights wall pose a substantial risk o f legal action o r liability, or (iv) that for any other reason Publisher has decided to cease distributing any particular Publisher Material* in print and digital form (each o f (i)-(iv) a “Clearance Issue"), then Publisher may w ithdraw such authorization, in w hich case A pple shall cease prom otion and sales o f eBooks using such w ithdraw n rights w ithin three (3) business days o f such notice. Publisher shall not discrim inate against Apple regarding any w ithdraw al requests.

7. Parental Advisory,

Publisher shall, i f and to the extent Publisher otherw ise provides "explicit"’ content ratings for any Publisher Content, indicate to A pple which Publisher Content ( if any) m ay b e Inappropriate for children using such "'explicit'’ content ratings, which A pple m ay use to notify potential end users o f such rating and control access to .such content.

8- N am es and Likenesses; Promotional. Use and Opportunities.

(a) A pple m ay use the nam es and authorized likenesses of, and biographical m aterial for, any eBook author, illustrator or other talent only to designate his o r her role (i.e.. as author) in the creation o f that eBook and m ay use any Preview s or Insert Content for any eB ook only to prom ote that eBook. Further w ritten approval from Publisher shall be required i f any nam e, likeness or identifying material is otherw ise used as an endorsem ent o f Apple, the O nline Store, or other products,

(b) Subject to Section 8(a), for the avoidance o f d o u b t generally, except with respect to any lim itations regarding the use o f Publisher M aterials, A pple m ay prom ote the O nline Store and content on the O nline Store in its solediscretion.

9. Copyright Notices; Ownership,

(a) Publisher shall provide an appropriate copyright notice in the Content File, which Apple shall display for each eBook.

(b) As between the Parties, subject to any pre-existing rights of Apple, all right, title and interest in and to (i) Publisher Content, (ii) Artwork, (iii) Previews, (iv) Insert Content, (v) other Publisher Materials, (vi) any other materials furnished by Publisher, and (vii) all copyrights and other rights embodied therein shall remain the property of Publisher; nonetheless, Apple shall not have any lesser rights than it would otherwise have as a member of the public,

10. Press Release.

Each Party agrees not to make or issue any public statement or press releaseregarding this Agreement or its subject matter without prior written approvalfrom the other Party.

11. Data Protection.

(a) Apple shall protect materials furnished by Publisher in a manner no less restrictive than Apple protects materials furnished by any other book publisher, including the use of the Security Solution, and the implementation and enforcement o f Content Usage Rules, as set forth in Exhibit B. If the Security Solution or other security technology is compromised such that eBooks are being made widely available without restriction or are capable of being printed, burnt or copied/pasted, having a material adverse effect on the commercial purpose o f the appointment and this Agreement, then Apple shall promptly notify Publisher o f the compromise and shall use commercially reasonable efforts to cure such compromise. If the breach is not substantially cured in Publisher’s reasonable judgment within thirty {30) days, then Publisher may stop providing additional New Releases to Apple, and if the breach is not substantially cured in Publisher's reasonable judgment within «i\ty (60) days, then Publisher may suspend Apple’s appointment until cured.

(b) In the even! of a security breach, of the Online Store servers such thatunauthorized access to Publisher Content becomcs available, then Apple will promptly notify Publisher o f the breach and will disable all access to such servers or destroy content on such servers within twenty-four (24) hours. ;

(c) .Publisher Materials in. Apple’s control or possession shall reside only on secure network servers or equivalent devices owned or controlled by Apple or its contractors with restricted access.

(d) Apple will comply with all applicable laws and regulations, and with the terms of its applicable privacy policies, with respect to the security and use of any personally-identifiable information of purchasers of eBooks

pursuant to tills Agreem ent {‘1P1T’) in A pp le 's possession. A pple will not disclose or use any PII other than in furtherance o f its obligations under this Agreem ent o r as perm itted under its privacy policy. Apple will use physical, adm inistrative and technical security m easures to protect PII that are at least industry standard and no less protective than those it uses for other personaliy-identitlable inform ation in its possession. Publisher will have the right to perform a reasonable technical audit o f A p p le 's applicable system s during norm al business hours on reasonable advance notice. Apple w ill be responsible for any notification o r other corrective actions arising from the leakage o f any PII from A pp le 's system s. The provisions o f th is Section 11(d) will also apply to any th ird party with which Apple contracts that m aintains o r has access to PII.

12. R ecord-K eeping and Audit,.

(a) A pple shall m aintain com plete records regarding sales o f eBooks and proceeds payable to Publisher for at least three (3) years follow ing the end o f the calendar year to w hich the records pertain.

(b) U pon no less than th irty (30) days advance written notice, and w ith in two(2) years follow ing the applicable m onthly sales period (the “A udit Period’’), Publisher, at its expense, m ay audit d irectly applicable records o f A pple a t A pple’s principal place o f business in the T erritory for the sole purpose o f verifying proceeds due Publisher. Such audit will be at Pub lisher's expense unless errors exceeding 5% or m ore o f the sum s paid to Publisher for the period(s) audited are found, in w hich case A pple will reim burse Publisher for the reasonable costs thereof. A n audit shall take place during regular business hours, and shall not occur m ore than once during any tw elve (12) m onth period. The person doing the auditing should not be engaged in an audit o f Apple, o r be doing the audit hereunder on a contingency-fee basis, and m ust provide to A pple a confidentiality agreem ent that protects A pp le’s confidential inform ation no less than the term s o f this A greem ent o r Publisher protects its ow n sim ilar inform ation. N otw ithstanding anything herein to the contrary, Publisher m ay disclose to authors and non-author licensors, their executors, adm inistrators, o r heirs, and the agents and representatives o f the foregoing, solely fo r the purpose o f com m unicating the effect o f the audit on Publisher’s royalty or other paym ent obligations to them , only the fact that an audit w as conducted, in general term s, the results o f the audit, and the results specifically pertaining to their eBooks. Publisher m ay audit a record only once, and no audit shall be conducted for a period spanning Jess than six (6) m onths.

(c) Unless Publisher provides a detailed objection w ithin two (2) years follow ing the applicable m onthly sales period. Publisher shall be deem ed to consent to all reports relating to that sales period, and such reports shall not be subject to objection by Publisher for any reason Publisher agrees that A p p le 's books and records contain ‘"'Confidential Inform ation" (as defined below).

13. Termination and Effect of Termination.

(a) Either Party shall have the right to terminals this Agreement (I) effective at any time on or after the first anniversary of the Effective Dale, at will for any reason or no reason upon advance written notice o f not less than thirty {30} days or (II) upon written notice, effective immediately, if the other Party (i) becomes insolvent, (ii) files a petition in bankruptcy, (iii) makes an assignment for the benefit of creditors, (iv) breaches a material term of this \greement, unless such breach is cured within thirty (30) days from notice, or if not able to be so cured, then resolved to the other Party ' s reasonable satisfaction,

(b) Sections 1, 4* 5, 6, 9(b), I I , 12, 13. 14, 15. 16, and 17 shall remain in full force and effect following the termination or expiration of this Agreement.

(c) If this Agreement terminates or expires, then Publisher Materials in Apple’s possession or control shall be promptly destroyed, excluding copies necessary for Apple's standard customer support practices, eg: re­downloads (subject to applicable terms in this Agreement), or required to be maintained fay app’icable law, rale or regulation. Upon Publisher's request, Apple will provide Publisher with written documentation of such destruction.

(d) Apple may, subject to the terns o f this Agreement, allow customers who purchased eBooks during the Terra to download new copies of those eBooks without charge if and to the extent consistent with Apple's general practices. However, notwithstanding anything herein to the contrary, Apple will not provide end-users with re-downloads of eBooks purchased prior to termination in the following circumstances: (i) with respect to all eBooks, if this Agreement is terminated or suspended pursuant to Section II or if Publisher terminates this Agreement pursuant to Section li(fl) and (ii) with respect to any particular eBook, if Publisher notifies Apple of a Clearance Issue with respect to that eBook.

14. Indemnification and Limitation of Liability, '

{<~j publisher shall be suieiv responsible for, and Apple shall have no responsibility or liability whatsoever with respect to, any and all claims, suits, liabilities, losses, damages, costs and expenses arising from, or attributable to, third-party claims arising from the Publisher Materials and/or their use by any end-user, including, but not limited to: (i) claims of breach of warranty; (ii) product liability claims; and (iii) claims that any o f the Publisher Materials and/or the end-user’s possession of use of those materials infringes the copyright or other intellectual property rights of any third party in the Territory.

(b) Apple may, if it deems appropriate to resolve any customer-satisfacnon issue, allow any end-user to terminate his or her license to use an eBook and give that customer a refund o f the Customer Price o f that eBook. If Apple so refunds fee Customer Price of an eBook, Apple will be entitled

to a credit in the amount of the eBook Proceeds from the purchase of that eBook by that customer.

(c) Apple will indemnify, hold harmless, and defend. Publisher, and its affiliates (meaning those United States entities that the assigning Party controls, is controlled by, or is under common control with) and their respective directors, officers and employees from and against any and ail losses, liabilities, damages, costs and expenses (including, if Apple elects not to defend the claim with counsel selected and paid for by it. reasonable attorneys' fees and costs) arising out o f a claim “by a third party by reason of a breach o f any warranty, representation, covenant or obligation o f Apple under this Agreement; or any claim that the technology used. by­Apple in its appointment infringes the intellectual property rights of another party.

(d) Publisher will indemnify, hold harmless, and defend, Apple and its affiliates (meaning those United States entities that the assigning Party controls, is controlled by, or is under common control with) and their respective directors, officers and employees from and against any and all losses, liabilities, damages, costs and expenses (including, if Publisher elects not to defend the claim with counsel selected and paid for by it, reasonable attorneys' fees and costs) arising out of a claim by a third party by reason of a breach o f any warranty, representation, covenant or obligation of Publisher under this Agreement; or any claim by a third party that Publisher Materials infringes the intellectual property rights in the Territory oi another party. Notwithstanding the foregoing, Publisher will have no obligation to indemnify Apple with respect to claims arising from:

i. Any distribution of, or access to any portion of the contents of. any eBook outside the Territory:

ii. Any distribution or use of any Publisher Materials or-any portion o f the contents thereof not authorized by this Agreement;

iii. Any distribution or use of any eBook or any portion o f the contents thereof after Publisher’s withdrawal o f authorization pursuan* to Section 6(g) or

iv. Any distribution or use o f any eBook or any portion o f the contents thereof more than 5 business days after Publisher has provided Apple with a revised version thereof pursuant to Section 6(e) insofar as the claim arises from material that is changed or removed in the revised version. ■■

(e) Each Party will promptly notify the other Party o f any claim for which it is seeking indemnification from the other Party pursuant to this Agreement, provided that the failure to give such notice shall not relieve the indemnifying party o f its indemnification obligations unless such failure materially prejudices the defense of the claim. With respect to any claim subject to indemnification under any provision o f this Agreement, the indemnifying Party will have the right to defend the claim with counsel selected by it and to settle the claim, provided that any settlement that imposes any obligation on the indemnified Party (other than, if Publisher

is the indemnifying Party, to cease use of any Publisher Content) shall be subject to the reasonable approval of the indemnified Party, The indemnified Party shall have the right to participate in the defense of the claim with counsel selected and paid by it and to settle the claim on its own behalf at its own expense,

(!) EXCEPT PURSUANT TO .AN EXPRESS INDEMNITY OBLIGATION, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR SPECIAL, INDIRECT. INCIDENTAL, OR CONSEQUENTIAL DAMAGES, SUCH AS LOSS OF PROFITS OR PUNITIVE DAMAGES., EVEN IF ADVISED OF THEIR POSSIBILITY.

(g) EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, NEITHER PARTY MAKES ANY WARRANTIES OF ANY KIND, WHETHER. EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE.INCLUDING ANY IMPLIED WARRANTY OF CONDITION, QUALITY, DURABILITY', PERFORMANCE, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR OF NON INFRINGEMENT.

15. Confidentiality,

Each Party acknowledges that by reason of this Agreement it may have access to certain information and materials concerning the other Party's business plans, customers, technology and products that are confidential and of substantial value to such Party, which value would be impaired if such information were disclosed to third parties or used, for purposes other than as expressly permitted by tbis Agreement (referred to in this Agreement as "Confidential Information” ). Each Party agrees during the Term hereof and for a period of two (2) years after the termination of this Agreement to maintain any and all Confidential Information received from the other, in confidence, and agrees not to disclose of otherwise make available such Confidential Information to any third party without the prior written consent of the disclosing Party. Each Party agrees that Confidential Information may be disclosed to its employees, attorneys, accountants, consultants, lenders, potential lenders and financial, tax, technical and other advisors and other personnel under its control and supervision, and those o f its affiliates, for purposes o f performing under this Agreement solely on a need-to-know basis in furtherance o f this Agreement, and solely to those individuals who agree to keep it confidential, unless required by law. or court or governmental order, or pursuant to a subpoena or other legal process, and as needed on tax returns or in connection with any examination or audit thereof. ' The Parties agree that they will, to the extent legally permitted, notify each other in writing of the receipt of any subpoena, court order or administrative order requiring the disclosure of Confidential Information and give the disclosing Party a reasonable opportunity to object to the subpoena, court order or administrative order. Confidential Information shall be deemed to Include (i) information marked confidential, if conveyed in writing, and (ii) information identified orally as confidential, if conveyed orally. Confidential Information shall not be deemed to include any infonnation which (a) is publicly known at the tune

of the disclosure, (b) becomes publicly known other than by breach oi' the terms of this section, (c) becomes known to the receiving Party or any of its affiliates, without restriction, from a source which, in the receiving Party's or its affiliate's reasonable belief, is free o f any obligation of confidentiality and without breach of this section, (d) is independently developed by the receiving Party or any of its affiliates, or (e) is or was in the receiving Party’s or any of its affiliates' possession at the time of disclosure, •

16. Additional Representations and Warranties of the Parties.

(a) The Parties agree that the nature o f their relationship is that o f Publisher as principal and Apple as agent,

(b) Apple shall not pledge, mortgage or otherwise encumber any part o f the Publisher Materials.

(c) Each Party agrees that it has full authority to enter into this Agreement, and to fully perform in a professional and competent manner.

(d) Each Party agrees that i t owns or controls the necessary rights in order tomake the grant of rights herein, and that exercising such rights in accordance with the terms of this Agreement shall not violate or infringe the rights o f any third party in the Territory.

(e) Each Party agrees to perform in compliance with any applicable law, rule and regulation.

17. General Provisions.

(a) Contractors. Apple may contract with third parties in furtherance of Apple's appointment, provided such third parties are subject to terms no less restrictive than the terms Apple is subject to under this Agreement. Apple shall be responsible for the performance o f such third parties while under Apple* control and supervision.

(b) Entire Agreement, Modification, Waiver. This Agreement, including any schedules and exhibits, contains the entire understanding o f the Parties relating to its subject matter, and supersedes all previous understandings between the Parties. Ttas Agreement cannot be changed or modified except by a writing signed by the Parties. If any provision of this Agreement is determined by a court o f competent jurisdiction to be unenforceable, such determination shall not affect any other provision hereof, and the unenforceable provision shall be replaced by an enforceable provision that most closely meets the commercial intent o f the Parties.

Pmding on Successors. This Agreement shall be binding on the assigns, heirs, executors, administrators, and successors (whether through merger, consolidation, reorganization, sale o f all or substantially all of its assets, operation o f law, or otherwise) o f the Parties. Either Party may assign or

transfer an> part of this Agreement to any U.S. affiliate (meaning those United States entities that the assigning Patty controls, is controlled by, or is under common control with) without the other Party’s consent. Any prohibited assignment hereunder shall be deemed null and void.

(d) Notices, Any notice under this Agreement shall be given in writing and shall be deemed to have been delivered and given; (i) on the deliver} date if delivered personally; (ii) upon delivery by con firmed-receipt facsimile; Oil) one (1) business day after deposit with a commercial overnight carrier, with written verification of receipt; or (iv) five (5) business days after the mailing date, whether or not actually received, if sent by certified mail, return receipt requested, postage and charges prepaid.

If to Publisher, to the contact specified by Publisher ua iTunes Connectwith a copy to the Legal contact specified below:

Publisher General Counsel175 Fifth Avenue New York, NY 10010 Fax; 212-529-0594

If to Apple, to:Associate General Counsel, iTunesApple Inc,1 Infinite Loop, MS 3-1TS Cupertino, CA 95014 Fax: 408-974-91G5

(e) Governing Law. This Agreement shall be governed and interpreted inaccordance with the laws of the State of California, without regard to principles of conflict of laws. The Parties agree that any proceeding relating to this Agreement will take place in the No. District of California; and both Parties hereby waive the right to object to that choice of law, personal jurisdiction or venue.

(t) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same document.

(g) Remedies, To the extent permitted by applicable law. the rights and remedies o f the Parties provided under this Agreement are cumulative and in addition to any other rights and remedies of the Parties at law or equity.

(h) Headings. The titles used in this Agreement are for convenience only and are not to he considered in construing or interpreting the Agreement.

(i) No Third-Party Beneficiaries. This Agreement is for the sole benefit of the Parties and their authorized successors and permitted assigns. Nothing is intended to confer upon any person or entity, other than the Parties and

their authorized successors and permitted assigns, any legal or equitable right, benefit or remedy' o f any nature whatsoever under or by reason o f this Agreement.

IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly executed by their respective officers thereunto duly authorized.

Apple INC.

Name: Eddy Cue Title: VI}, Internet Services Date: U ^ f i O

Publisher

Name: Title: . Date:

JdkjC£t

3k

•'■ 7 / Si

By: . 1 /A^_ fy -L 7 Signature ^

"

~ ~ ~

EXHIBIT A

Definitions

“List Price, or Lists” means the publishers suggested xeVt1 pricing o+ me corresponding physical book,

KYT Bestseller List shall mean the Hardcover (adult) Fiction and Hardcover (adult) Nonfiction and Hardback Advice bestseller lists as published on the New York Times website,, excluding the below the line “Also Selling” titles also known as the ‘‘Expanded List”, as compiled and displayed- by the New York Times as o f the Effective Date, with such subsequent immaterially-changed version(s) in how any o f the lists are compiled and displayed as are agreed to by the Parties, which agreement shall not be unreasonably ■withheld.

Customer Pricing

1. The maximum, prices for New Release hardback books.

List Price

£ 20 .01 - 22.00$22.01-24.00$24.01-25.00$25.01-27.50$27.51-30.00$30.01-35.00$35.01-40.00

' Customer Price

$9.99$10.99$11.99$12.99SI 4.99$16.99$19.99

70%

$7.00$7.70$8.40$9.10$10.50$11.90$14.00

•All prices are in U.S. dollars,

2. In addition, when a book that Lists for $30 or less is In the NYT Bestseller List then the Customer Price will be no .greater than $12.99; and when a book that Lists between $30.01 and $35.00 is in the NYT Bestseller. List, then the Customer Price will be m greater than SI 4.99, :

3. For non-hardback books, the Customer Price will be no greater than $9.99. unless the non-hardback List‘Price is greater than $22, in which case Publisher shall set the Customer Price in its discretion, 'which book Apple may carry.

4. For eBooks for which there is no corresponding physical product and for books that have a List Price greater than $40. Publisher shall set the Customer Price in its discretion, which book Apple may curry,

5. Notwithstanding the: foregoing, if a New Release hits the NYT Bestseller lists for Fiction, Non-Fiction, or Hardcover Advice, then for so long as the New Release maintains such position on the applicable list, the Customer Price shall be no greater than $12,99 tor the corresponding eBook version of such New Release, and if the List Price o f such New Release is between $30.01 - $35.00, the Customer Puce will be no greater than $14.99.,

Confidential

66, . Ali All iTunes iTu&es pprices rices shaH shall end end in in “"$~-.99". $ ~ .9 9 ”.

7. 7. From From, titimme e tto o ttime, ime, ssubject ubject to to googood d fafaitith h discussions discussions and and mmutuautual l agreement, agreement, Apple Apple and and Publisher Publisher may may explore explore limited limited ppricing ricing tests tests for for which w hich there th ere is is a a compelling com pelling mmutuautualllly y beneficial beneficial bbusiness usiness jjustification. ustification.

17 of2.0

APLEBOOK00384823

EXHIBIT B

1. Definitions.

(a) “Non-Transfer Device"* means a device (including, without limitation, a digital content rendering device or mobile phone) that uses the Security Solution, but cannot transfer an eBook along with their usage rights keys to any other device, except if that other device is already authorized for the Online Store account used to acquire that eBook.

(b) “Transfer Device” means a computer that uses the Security Solution, and can transfer eBooks along with their usage rights keys to any other device.

2, Usage Rules.

End users acquiring eBooks may (solely for the end-user's personal and non-commercial use):

(a) Use eBooks on up to five (5) Transfer De ces and an unlimited numberof Non-Transfer Devices at the s m , ime; and

(b) Re-download previously purchased eBooks from the Online Store subjectto the provisions and exceptions in Section 13(d).

Confidential

EXHIBITC E X H I B I T C­

"FAIRPLAY “ F A I R P L \ Y SPECIFICATION'' S P E C I F I C A T I O N 5'­

19 of 20

APLEBOOK00384825

F a i r P l a y ™ W h i t e P a p e r

Version 3.1

APPLE NEEDS TO KNOW CONFIDENTIAL

© 2002-2009 Apple Inc.

IntroductionThis document provides a high level description of FairPlay architecture and the mechanisms

used to support Apple’s digital content protection, which content being purchased vk 4,ppie iTunes Store (ITS). The principal motto is to make it easy and convenient for customers to stay within their personal rights, and to make it difficult and inconvenient for people with bad intentions to stay outside the bounds of these lights.

OverviewCustomers have the rights and ability to:

1, Copy and use their purchased content on up to 5 transfer devices (e.g., authorized computer);

2, Copy and use their purchased content on non-transfer devices & iPods); aad

The service relies on the following underlying mechanism:

1. Store content on th nvnsfer devices or on the non-transfer devices is protected in a proprietary file format;

2. Encrypted file format for video is at least 5%. The encrypted video data., is spread approximately evenly throughout the file.

3. Encrypted chapter format for eBook is 100%

4. iTunes, QuickTime, and eBook reader manage the Ole tbrioat. FairPlay only allows

access to the video, and eBook content for Apple playback applications, (i.e., QuickTimePlayer, iTunes. etc.); '

5. Only FairPlay removes the content protection before playback;

6. The transfer devices are authorized to obtain the FairPlay material from the onlineservice. This authorization step is only performed once per computer owned by the cuhiomer;

7. FairPlay checks the locally stored FairPlay material before playing back the protectedi

content. >

Registration and Key DistributionThe customer completes a one time online registration with the service to create the account and

the accoimi credential: “Username’5 and “Password”, Hie registration may not require a valid

credit card number, the customer must agree to terms of use.

At the time of the purchase and on the regular basis, a random value is generated by the service and then assigned to the account as the Account Key, The sendee stores the Account Keys, The service sends them to customer transferable device and it is stored in a local single container:

“The K e y b a g The Account Key protects the content. iTunes and QuickTime, invoking FairPlay. They use the Keybag for further playback of the content (see “Authorization” below). The customer never deals directly with the Account Keys. It is used behind the scenes to make sure that the content stored in iTunes or QuickTime library is encrypted and it can’t simply be copied into other applications (e.g., Lane Wire or KLais&a).

FairPlay identifies the appropriate Account Key using the '*Account ID” nnd the Ke> ID that makes the Account Key unique in the Keybag. This feature allows a given user to have multiple Account Keys, each of them protecting one or more pieces of content as required by the downloading process.

AuthorizationEach computer system owned by the customer has a local Keybag, which is maintained by FairPlay; The Keybag is a bidden protected file. The Keybag contains s list of Account IDs, which indicate that this transferable device is authorized to access content purchased by that account.

In addition. Ihe Keybag stores the Global Unique ID (GUID) for that transferable de\ ?ce (e g.. the Ethernet MAC address). The GUID is the unique signature of the transferable device Is isused to tie the Keybag to .that transferable device. Figure I conceptually represents the transferable device Keybag.

Along with the Keybag. FairPlay uses second container: ‘The Diversity Bag1 that contains cryptography elements to make the instance of FairPlay of transferable device unique FairPlay ties the Diversity Bag to a transferable device using the GUID.

The service maintains a server database, which stores the GUlDs o f authorized computers for

each customer account, as well as the Account Keys and :he element o f the Diversity Bag.

Figure 1 Ksvbag Description-

The Keybag and the Diversity Bag are both encrypted on persistent memory. The crypto­

solution and the appropriate keys to protect and unprotect the Keybag and the Diversity' Bag are

algorithmically derived and they are different on every transferable device.

. D e - c o m m i s s i o n i n g

I f the customer breaks, sells or otherwise stops using one ofM s/her transferable device, s/he

needs a way o f "de-authorizing” it. In other words,, taking it o ff the list o f authorized transferable

devices recorded on the servers. Like the authorization, the customer de-authorizes the

transferable device by going online with the service. After completion o f the process, the GUID

is removed from the slot in the server database and the related account (including the Account

Keys) is removed from the Keybag. In order to prevent abuse, the service could set a limit on

how often a user can de-commission a transferable device.

P u r c h a s e a n d D o w n l o a d

The customer is logged into the service using the credential (which could be stored on the user's

system for automatic login). Once the customer has found and selected a piece o f content to

purchase, the transaction is a "one-click” buy, since the credit card information was previously

entered at registration time. Mote iTS allows the purchase with shopping char.

'The content is stored in encrypted and encoded form on the server The crypto-system uses

AES-128 algorithm as a primary algorithm. Each piece o f content may have multiple tracks,

which are individually encrypted with the.ii own unique content key. It is important to notice the

any content encryption occurs on Apple servers.

Protection

Hie content files protection consists of:

1, Tiie Account Key located in the Keybag is the vector to access the contest key that encrypts the content. The content key is a different key and value than the Account key. This forms a level of indirection allows multiple downloads of the same file to have different data

stored on disk even from the same account.

.2, The service sends Account Key to the customer transferable device and it has both integrity and privacy features that use cryptography functions.

3. The purchasers account information is stored, in the file in a way that it can be displayed without decrypting the file. However, attempts to remove or alter this account information

results in a nan-p layable file.

Storage

Video StorageThe encrypted and encoded video is packaged using MPEG-4 container format or it’s equivalent This file contains: :

1. The. account information;

2. The FairPlay material;

3. The meta-information about the content (title, artist, etc.); and

4. The encoded, and encrypted content,

eBook Storage . ■FairPlay protection applies to the ePub open standard file format. The first of these formats,OCF 1.0 has intrinsic support for file encryption and DRM as well as digit;;! signatures. AppleeBook, storage for protecting eBook content complies with the provisioning DRM supportprovided with OCF 1.0,

An ePub file in OCF 1,0 is a ZIP archive of a directory structure containing the eBook data , At

the root is a reserved directory called “META-INF” that contains the control mlormation. This directory contains some mandatory and optional XML files that describe the properties of the ePub file and must not be encrypted.

II e OCF standard describes how the files “eacryption.xml” and “rights.xrai"' in the “META- INF” directory may be used to describe the encryption and DRM properties of the reclaming

tiles in the archive. The encryption,xml contains a list of encrypted files and rights.xiiii stores the content key(s).

Oilier type of formats are supported as long as they can be protected with the FairPlay protection rules.

Playback and ReadingiTunes, QuickTime or eBook reader recogrn?e^ the file format, iTunes,, QuickTime or ibe eBook reader passes to FairPlay the FairPlay material that starts the FairPlay session. With ‘"A ceou.it ID'’ and the associated KeylD, FairPlay fetches the appropriate Account Key in the Keybag, FairPlay then verifies the Account Key and the retrieves the plaintext value of the Account Key tiding the Diversity Bag. FairPlay includes the GUID of the transferable device in the process to avoid any Keybag lifting. That prevents the Account Key or the Keybag to be unhidden then

dragged and dropped onto another transferable device. FairPlay then uses plaintext Account Key to recover the content key and finally decrypt the content. If the Account ID or the Key ID does not appear in the Keybag, or the file appears to have been altered, then FairPlay does not provide any resources, to decrypt the content,

_Non-Transfer D

\

_________ evicess _______ __ ________ _______________ _ _________

The iPod or iPhone is not a transferable device but the level of content protection remains compatible with the one of the transferable device. The content from the transferable device is loaded to iPod or iPhone without cryptographic process. In other words, FairPlay does not decrypt and then re-encrypts the content or the FairPlay material for the target iPod/iPhone. In addition, when the customer synchronizes the iPod/iPhone with a transferable device, Keybag is merged into the iPod/iPhone Keybag, which gives the access to the Account Keys needed to play

back the content H ie iPod/iPhone’s Keybag implements the iPod/iPhone’s-GUID, which is used

to prevent moving the iPod/iPhone’s Keybag to another IPod.

When the- purchases are dircct iy done "rom the iPhone, the service sends ihs appropriate FairPlay

key material'directly to the iPhone with die same protection.

FairPlay is a registered trademark o f Apple Inc.